New Calculations for Overtime Pay in California

What is Overtime pay?

The Federal Fair Labor Standards Act (FLSA) requires employers to compensate non-exempt employees at a rate not less than 1 ½ times their regular rate of pay for more than 40 hours of work in a defined workweek. The FLSA does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest, unless overtime hours are worked on these days.

In addition to the FLSA requirements, California requires employers to pay non-exempt employees a rate of not less than 1 ½ times their regular rate of pay for more than 8 hours of work in a day and the first 8 hours of work on a 7th day in a defined work week. They must be compensated at a rate of at least 2 times their regular rate of pay for more than 12 hours of work in a day and more than 8 hours of work on a 7th day of work in a defined work week.

The regular rate includes all compensation or earnings for work performed EXCEPT,

Reimbursed expenses

Reporting-time premiums

Vacation or holiday pay

Discretionary bonuses

CA SUPREME COURT RULING

Last month, the California Supreme Court ruled that when calculating overtime in pay periods in which an employee earns a flat rate bonus, employers must divide the total compensation earned in a pay period by only the non-overtime hours worked by the employee.

For example:

Joe works 44 hours in a defined work week at a rate of $15/hour and receives a bonus of $200 based upon his sales during the week.

In the past, the total number of hours worked would be used to compute the overtime rate.

$860/44 = $19.55/hour

$19.55 x 1 ½ = $29.32.

So, Joe would have been paid $29.32/hour for the four hours of overtime.

With the new ruling, only the first 40 hours are used to compute the overtime rate.

$860/40 hours = $21.50/hour

$21.50 x 1 ½ – $32.25

So, from now on, the four hours of overtime will be paid at the rate of $32.25/hour.

Although federal regulations remain the same in calculating by dividing total compensation by total hours worked, California employers who pay these bonuses should review their policies and pay practices to adjust to the new ruling, stay in compliance and avoid having to pay penalties or fines.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.